Retainers and advance payments
If a client pays you in advance for work to come, the money is not income until you earn it. Record it as unearned revenue, then recognize it as you deliver hours or milestones. This gives a more honest picture, and it prevents a month of apparent riches followed by a month of apparent losses. Your engagement letter should state whether the retainer is refundable.
Reimbursable expenses
When you travel for a client and bill the cost, handle it consistently. One method is to record the expense, then invoice it on a separate line mapped to a reimbursement account so income and cost offset. Another is to record the pass-through as income and the cost as an expense. Choose one and keep the receipts attached. Be sure your contracts say what you may bill and any markup.
Collecting and watching receivables
Run an accounts receivable aging report weekly. Anything over thirty days deserves a polite reminder, and anything over sixty a phone call. Set payment terms on each invoice and consider late-payment language in your contract. A consultant who bills on the first of the month but never follows up often waits far longer than agreed.
Contractors, tools and home office
If you hire other consultants, treat the relationship carefully, collect a W-9 and issue a 1099-NEC where required. Software, subscriptions, professional development, insurance, and licenses are normal expenses. A home office deduction has specific rules around regular and exclusive use, so ask a tax professional before claiming it. Keep a mileage log when you drive to client sites.
Plan for taxes and slow months
With no employer withholding, estimate taxes quarterly and move a fixed share of each payment to a tax savings account. Review your profit and loss each month, then adjust. Keep a cash reserve covering a few months of fixed costs, since project gaps happen. If your income grows, ask a CPA whether another entity structure makes sense, since that depends on your situation and state.
Bookkeeping habits that save time
Create invoice templates for each type of engagement, with the terms and payment instructions already included. Turn on payment links so clients can pay by card or bank transfer, and record the processing fee as an expense instead of netting it. Send invoices the day work is approved rather than waiting for month end.
Every quarter, compare actual income to your forecast, and note which clients are producing the most profit per hour, not just the most revenue. A client who needs constant revision may not be worth their invoice. Having a clean set of books makes that conversation easier and gives you support if you apply for a loan or lease.
Write down what is included and what is billed as an extra. When the client asks for something new, record the change in an email and bill it as a separate line. Unrecorded scope creep is the most common reason a good engagement ends with a poor hourly return.
Common questions
Should I invoice at the start or end of a project?
That depends on your contract. Many consultants invoice a deposit upfront and then on milestones, which improves cash flow.
Do I charge sales tax on consulting?
It depends on the state and the type of service. Ask the state revenue office or your CPA before assuming either way.
This guide is general information, not tax, legal or accounting advice. Rules, fees and due dates change; check with the IRS, the NJ Division of Taxation or a licensed professional for your situation.